FOMC March rate decision – rates to stay unchanged but dot plot in focus
Investors will be watching this week’s Fed meeting to see whether there are any changes to the famous dot plot, the forecast for interests in 2024 and 2025.
Rates to remain unchanged
The upcoming Federal Open Market Committee (FOMC) meeting on 19-20 March is widely anticipated to maintain the status quo in its monetary policy stance. According to forecasts, the federal funds rate, the benchmark interest rate that influences borrowing costs across the economy, is expected to remain unchanged in a range between 5.25% and 5.5%.
Focus on Dot Plot Revisions
Perhaps the most significant aspect of the upcoming FOMC meeting will be the scrutiny surrounding the median dot plot for 2024 and 2025. Any upward revision to the 2024 median dot of 4.625% could trigger a substantial repricing of risk across asset markets and alter forecasts of the timing and magnitude of the Federal Reserve's (Fed) anticipated rate-cutting cycle over the next two years.
Economic Projections Update
While the FOMC's formal policy statement is not expected to undergo significant revisions, market participants will closely monitor the accompanying Summary of Economic Projections for potential upgrades to the 2024 economic forecast. Despite recent stronger-than-expected inflation data, the FOMC's projections for unemployment and inflation over the next three years and in the long run are anticipated to remain largely unchanged.
Risks to the Outlook
However, risks to the outlook persist. With the economy continuing to outperform expectations and consumer spending remaining resilient, the Fed might adopt a more patient approach to rate cuts than initially anticipated. This could result in the central bank reducing its policy rate twice or even fewer times through the end of 2024, deviating from the market's current pricing.
Equity Market Resilience
Stock markets have demonstrated remarkable resilience, seemingly undaunted by the tightness of monetary policy. Over the past 12 months, the S&P 500 index has increased by 30%, while tech stocks in the NASDAQ index have surged by an impressive 45%. This performance may be attributed more to perceptions of an increasingly innovative economy than to the Fed's efforts to limit demand and combat inflation.
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Keep an eye on FOMC opportunity
Find out how FOMC meetings can affect the markets ahead of the next one on 17-18 December 2024.
- How might the next Fed meeting impact your trading?
- What was decided at the last Fed meeting?
- How does the FOMC announcement usually affect the dollar?
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